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A Looming Financial Crisis? – A Conversation On Unregulated Derivatives

Ten years after the unregulated derivatives market helped trigger a global financial crisis, University of Maryland Law Professor Michael Greenberger discusses his new INET research on how American banks continue to systematically evade derivatives regulation, putting the global economy at risk.

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Unregulated Derivatives
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Discussing the paper with Professor Greenberger are Federal Reserve Chairman Paul Volcker, former FDIC Vice Chairman Thomas M. Hoenig, INET President Rob Johnson, and Better Markets President Dennis Kelleher.

A Looming Financial Crisis? - A Conversation On Unregulated Derivatives

Transcript

Once Upon a Time in the United States people believed that they had a society and they believed that we should construct the rules where essentially the refs don't work for one team or the other. That ethic that sensibility certainly has come into how he's saying come to be tested at various times in our history but probably never more fiercely and visibly as in 2007 than many people now attribute the discord that manifest as Occupy Wall Street on the left or the Tea Party on the right. It's not just related to the financial sector but as a deterioration in the faith legitimacy and trust in American governments all together. That loss of faith if it be true puts America in a huge disadvantage in terms of its ability to evolve and transform. I think it's interesting to be heard Scandinavia house because the last time I had breakfast here was with a group of people from Sweden who said to me the American model of fierce deregulation was always said to be the growth model but now we in Sweden don't fear the robots anymore because we know how to make transformations where our children retain their education their healthcare. We retain our pensions maternity and paternity leave and job retraining. So we're happy to embrace new productivity and we see America getting bogged down to despondency whether related to globalisation or related to technology. So I think before us now we have a tremendous number of challenges and we are saying burdened with the need to regenerate faith and trust in our social systems. So we go back to that what you might call that that deep wound of 2008.

And the gentleman here with me are all how he's saying more than experts in this realm starting down at the end. The moderator today Dennis Kelleher who work with Senator Dorgan in the leadership office during the Dodd Frank legislation and in recent years runs an extraordinary organization called Better Markets. I'd encourage you to read Stephen Brills new book because Dennis is featured as one of the good guys who's trying to turn things around. Tom Hoenig you've always been trying to turn this direction with the Kansas City Fed or more recently at the FDIC and I know you've had some serious commentary on Michael Greenberg's work and I would say a new glass steagall and things of the sort. Michael our speaker formerly a commissioner at the CFTC and been a good friend of mine we worked very closely through all of the Dodd Frank work. When I was at the Roosevelt Institute of Global Finance project and last and certainly not least we have Chairman Paul Volcker who I thought weighed in tremendously to the point where how would I put it. Even the industry started to attack you as I never followed George Soros says sometimes you got to be happy who your enemies are. So Chairman Volcker I'm I'm really grateful that you made to see us and continue the energy. And I know the Volcker Alliance we've worked with it. I know it on numerous occasions is doing excellent work and I encourage you all to stay tuned to what they have been and continue to develop not just in the financial sector but related to good governance everywhere. So with that let me turn it over to Dennis and Terry for carry it from you.

Well good morning everybody. Thanks Rob and thanks to Einat not just for kind of generically everything that they do but for their steadfast commitment to paying attention to issues no matter how complex if they're important. And what we're doing here and talking about really one of the most important things in financial reform in the financial sector which is derivatives and the cross-border implications of derivatives. Now it's not going to make a headline and it doesn't fit in a tweet but it's a heck of a lot more important. And Michael's going to go through his paper. But I wanted to say to start first of all you know derivate the crash as everybody here knows had a lot of different causes but nobody can deny that derivatives were at the core of causing the crash. Derivatives were time bombs laid throughout the financial system and at the same time they were a conveyor belt that delivered those time bombs throughout the global financial system. And what this paper really is about is how that happened in 0 4 5 6 7 8 boom time bombs explode the world the conveyor belt worked unfortunately. And essentially this paper talks about how that conveyor belt has been rebuilt by subterfuge by an industry committed to evading the most sensible modest and fundamental and necessary protections. And so Michael who you should. It's not that long of a paper it's a hundred pages and I encourage you to read it because it gives you the broad sweep it puts it in context. It's actually said in English you can actually understand it even if you're not a derivatives professional which most people are not. Thank God.

Right. So with that really one of the nation's most experienced knowledgeable and articulate experts on the CFTC derivatives and the cross-border implications. Michael is going to run us through the highlights of the paper and then we're going to have a discussion about that so Cambodia has the podium Well thank you very much. As Rob said Rob. Tom Ferguson who is my editor and prodder through this entire thing unfortunately he couldn't be here today. We started working together right after the melt down site. I am in D.C. Rob was in New York. Tom That point was in Boston but we saw each other a lot. Tom Rob I have done wonderful work and I'm indebted to them. They funded this paper. Dennis is one of the top market advocates for the good guys and better markets has just done a fabulous job. I'm honored to have Mr. Volcker Mr. Honeck here today to comment on the paper. When I walked in and somebody was thumbing through the paper and said this is over 100 page actually it's 110 pages. Oh I would like to say in preface is I work very hard.